Credit Card Reform: It’s about Time

by Sally Greenberg, NCL Executive Director

Three cheers for President Obama’s speaking out publicly against some of the worst abuses in the credit card industry. Mr. Obama called to the White House the heads of banks issuing these cards and gave them a dressing down. No more “anytime, any reason rate hikes,” he said. Credit cards companies should offer a “plain vanilla, easy to understand, simplest terms possible” card for the average user, and not bury hidden charges and fees in the fine print of the contract.

Consumer groups have long urged Congress to reform the most odious practices of  the credit card industry, including calling for a ban on mandatory arbitration clauses in all their contracts and barring class actions for users who have complaints against their credit card issue. We’ve called for bans on universal default – a practice that sends your credit card interest rates up if you default on another unrelated payment, say your mortgage. In a recent Washington Post article, a reader who had perfect credit but miscalculated her payment date and was two days late on a bill saw her interest rate shoot up. She was told this hike was “automatic.”

We applaud the President for using his bully pulpit to call out the rampant abuses in this industry.  Earlier this year, the Federal Reserve issued regulations to curb many of these abuses, but those rules won’t go into effect into effect next year. NCL has joined with a host of other consumer groups in a letter to Congress supporting House and Senate bills to codify into law many of the Fed’s rules. Among the bills’ features are banning interest rate increases on existing balances unless payment is more than 30 days late and forbidding “double-cycle billing,” the practice of charging interest on debts paid off the previous month. The bills would require 45 days’ notice for a rate increase on your credit card account.

We hope the President will weigh in with Congress in support of these all-important issues. His voice will be needed to overcome the vocal opposition from the industry and their supporters in Congress.

Reducing Gift Card Fees Is The Pro-Consumer Thing To Do

By John Breyault, NCL Vice President of Public Policy, Telecommunications, and Fraud

With the holiday shopping season quickly approaching, many consumers have started to think about what to give loved ones, friends, co-workers, and others who manage to make the list this year–a harder feat for many, given the current economy. While many shoppers will spend hours looking for “just the perfect thing,” many others will choose to give gift cards instead.

As anyone who has given or received a gift card in recent years can attest, today’s gift cards are not the flimsy paper gift certificates of yesteryear. (Remember those?) Almost every major retailer, bank, and credit card company offers gift cards, and they can be used as easily–in most cases–as a credit or debit card. This has driven an explosion in the popularity of gift card sales. In 2007 alone, the industry totaled up $97 billion in sales, up from $83 billion in 2006. To put that number is context, the entire FY2009 budget for the Department of Homeland Security was $58 billion.

Last year, 7 out of 10 Americans received a gift card during the holiday season. (Great gift-giving minds think alike, eh?) Unfortunately, many consumers who have given or received gift cards have also noticed the cost of that convenience: fees, and lots of them.

Gift cards issued by retailers (known as “closed-loop” cards) tend not to charge many fees since they make their money on the markup on merchandise and services. However, the cards issued by banks, credit card companies, and shopping malls — known as “open-loop” cards because they can be used at multiple retailers -– tend to pile on the fees. From fees charged for the “privilege” of buying the cards, to maintenance fees that deduct value from the card after six months, or even fees charged to check the balance on the card (not to mention the fees the card issuers get from merchants when the cards are swiped), these cards are veritable ATM machines for issuers.

We believe that wherever possible, the money consumers invest in gift cards should stay in their pockets. This is why today we are joining with Consumer Action and the Montgomery County (Maryland) Office of Consumer Protection (OCP) to launch the “Gift Card Holder’s Bill of Rights.” The bill of rights spells out ten pro-consumer steps that gift card issuers can take to make gift cards a better deal for consumers. Given the fact that the economic crisis is likely to make this gift-giving season especially hard on consumers, we believe that gift card issuers should give consumers a break and eliminate or reduce their most egregious fees.

From NCL’s press release announcing the Gift Card Holder’s Bill of Rights:

“With the worst economic times in a generation looming and many Americans facing job loss, decreased wages, and increases in the cost of health care, groceries, and other goods, this holiday gift-buying season may be a source of dread, not joy, for consumers watching their budgets,” said Sally Greenberg, NCL Executive Director. “The companies who profit from the rise in popularity of gift cards owe it to consumers to reduce their fees and expiration dates, improve the value of their cards, and compete for consumers’ business.”

While we wait for card issuers to improve their terms and conditions, there are several common-sense steps that consumers can take right now to avoid getting stuck with gift cards that deliver less value than they promise. We encourage you to check out the practical consumer tips in the new gift cards section of our Web site to learn more.

A final bit of parting advice: Think of giving gift cards like giving a fruit basket. It’s a wonderful gift that can bring plenty of enjoyment, as long as they’re used up before the fruit goes rotten. Like fruit baskets, make sure and use up those gift cards early to avoid getting pickled by costly fees and expiration dates.

Congratulations, Class of 2008! Now Pay Up

While millions of college students are frantically trying to land their first real job and secure affordable housing, many are also racking up the credit card debt.

The U.S. Department of Education estimates that almost 25 percent of college students will take on credit card debt in order to pay for their education.

Savvy grads know that having a solid credit history pays off for a bunch of reasons. Here are a few: when applying for a job, securing loans and purchasing auto or homeowners insurance.

That Warm Fuzzy Feeling: Fraud Center Helps Friend Avoid Credit Repair Scam

Turns out there are a few perks of working at a nonprofit consumer advocacy organization!

Just this week, a staffer at our Fraud Center was able to identify a scam that a friend of his was about to fall for and stop her from losing a bunch of money.

We track complaints on a number of scams: investment seminars, Fake Check Scams, and Phishing are just a few. Here’s what happened: “Rachel” saw an ad in a magazine from a company that claimed it would lower your credit score for only $500. She’s trying to remove some debt from her credit report, in order to buy a car, so this offer was especially appealing. “Rachel” called her friend, our colleague at the Fraud Center, to tell him about the offer. Good thing she did, because “Rachel” was able to save $500, and avoid further financial heartache.

Our staffer explained to Rachel that the only way to repair your credit is to get a copy of your report and review it for any errors. There are tons of scenarios in which mistakes can pop up on your credit report:

• A creditor reports inaccurate information to the credit bureau
• A case of mistaken identity leaves you paying for John C. Smith’s debt, when your name is John G. Smith.
• A credit bureau employee accidentally types the wrong Social Security number when inputting data.

You get the picture.

Consumers are entitled to one free copy a year of their report through any major credit bureau. You can request your copy here. The moral is: as tempting as a company’s promise to “fix” your credit report may be, it’s not true!

You can report complaints of credit repair scams to NCL’s Fraud Center. Feel free to drop us a comment about how you avoided being scammed. Or, consider supporting our efforts in educating consumers on avoiding being scammed!